Mediation offers promise, but beware of pitfalls

Mediation is the future of dispute resolution in the shipping industry. Common shipping disputes which could benefit from mediation include cargo claims, charter party disputes, sale/supply disputes, shipbuilding contractual disputes, collision claims, pollution claims and disputes between an underwriter and third parties in subrogation of the assured’s legal rights following a pay-out to an assured.

The shipping industry is a niche area of law and commerce. In these circumstances, specialist knowledge is almost always required to allow a mediator to effectively assist the parties in resolving their dispute. Much like judges in court proceedings, mediators may ask questions and make rigorous preparations in anticipation for the mediation. For this reason, experienced shipping lawyers, retired judges, practicing attorneys/solicitors and advocates/ barristers, as well as those with in-house expertise and surveyors are often appointed to mediate disputes arising within the shipping industry.

That said, mediation is not without its disadvantages. Due to the flexibility inherent in the process, this method can create confusion and proceedings may lack structure.

A binding precedent

From a common law perspective, the main disadvantage of mediation is that it does not set a binding precedent. Jonathan Lux, a London-based barrister and mediation expert with 30 years of experience as a solicitor at Ince & Co in the field of shipping, notes that this is easily resolved by referring any issues of law to court for confirmation. “Although 90% of shipping disputes are fact-driven, mediation does not prevent parties from agreeing to send a discrete issue of law to court for determination,” he says.

Declaratory orders in relation to questions of law are not foreign to the South African legal system. In fact, it may be in the interests of justice for a court to make a finding on a point of law, in order to develop the common law in line with section 39(2) of the Constitution of South Africa, 1996. This forms part of the inherent jurisdiction of the High Court of South Africa to regulate its own procedure.

Moreover, industry experts agree that there is nothing preventing the parties from making a press statement as part of their settlement agreement, thereby bringing their decision and reasoning into the public domain. While not binding in the same way as a legal precedent, it gives other parties involved in mediations a source of reference to guide their own negotiations. The essence of mediation is its flexibility to incorporate innovative solutions.

Mr Lux suggests the case of the Cavendish (1993) 2 LLR 292 as an ideal example of how to implement the aforementioned approach, and where mediation may have been beneficial in synthesising the issues through an assumption of negligence and fixed set of facts, and a referral to the court. The case concerned pilot negligence when a vessel struck a fixed buoy in the approach of the Thames. The court annexed a schedule of assumptions to its order so as to focus on the crucial issues of limitation and the underlying law, which provided the basis of the pilotage claim.

Clauses and models

If parties to a shipping agreement, such as a contract of carriage or charter, agree that they wish to refer any future or existing disputes to mediation, they should also pay very careful attention to the wording of the mediation clause included in the shipping contract.

An abundance of standard form contracts dictate commercial shipping relationships, some of which do provide for mediation. However, where the parties have a particular dispute or a particular mediation procedure in mind, they should involve lawyers to assist with the drafting of the clause to ensure that their expectations are met and their intentions are clearly expressed.

Although parties may or may not choose to incorporate a mediation clause into their primary transaction contracts, this approach does not preclude the parties from concluding an agreement to refer a dispute, as and when it arises, to mediation on an ad hoc basis.

Multi-tiered dispute resolution clauses are not uncommon to contractual arrangements and are incorporated into the standard BIMCO documents.

The English High Court has held that mediation clauses are enforceable and even further than that a ‘friendly discussion clause’ may also be enforceable.

Again, Mr Lux suggests three potential models for the incorporation of mediation. Namely, mandatory mediation, no mediation at all, and a hybrid where mediation is incentivised but not mandatory.

Synergy is key

Synergy between mediation and arbitration may perhaps be the next step in the development of mediation, adds Mr Lux.  In 2009, the Baltic Exchange and the London Maritime Arbitrators Association launched a mediation service as an alternative to arbitration and litigation for shipping and commodity related disputes. In 2014, Singapore launched the Singapore International Mediation Centre (SIMC). Working together with the Singapore International Arbitration Centre, the SIMC proposed a multi-tiered dispute resolution clause. In this instance, arbitration is started and the parties thereafter commit to mediation and the resulting settlement agreement goes back to arbitration and forms part of a consent order, which can then be enforced in terms of the New York Convention. The ICC Arbitration and ICC Mediation Rules have also been designed to create a synergy between the two forms of dispute resolution.

In shipping, commercial disputes are often referred to arbitration instead of court. If mediation takes place during arbitration, this may be attractive to those parties who may not wish to abandon the well-known certainty that arbitration brings.

Shipping disputes are among the most complex to resolve as they involve technical, legal, risk and commercial considerations. In light of the nature of shipping disputes, and the market conditions, solutions ought to be carefully crafted. Mediation provides the ultimate toolkit. If mediation is to thrive, the shipping market is ideally suited to its success.  The courts agree that mediation must be explored; it is up to practitioners and clients to do the rest at the genesis of shipping transactions.

Lana Jacobs is an associate for Bowman Gilfillan Africa Group, specialising in shipping and logistics. Since joining the firm in 2013, she has assisted in a number of high profile shipping matters litigation, including judicial ship sales, casualty and general claims and security proceedings matters in the High Court, as well as other commercial transactions for local and international clients. She can be contacted on +27 21 480 7803 or lana.jacobs@bowman.co.za.

For further details on mediation, including the Baltic Exchange/LMAA Mediation Terms 2009, click here.