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Mediation in the shipping industry – challenges and synergies

13 June 2016
– 4 Minute Read


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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 experts (surveyors) are often appointed to mediate disputes arising within the shipping industry.

Mediation is not without its disadvantages. Due to the flexibility inherent in the process, this method can create confusion and proceedings may lack structure. However, using an experienced mediator can help to counteract these potential difficulties. Experienced mediators follow a structured procedure to ensure the mediation sessions are run efficiently.

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’ 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.

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.

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.

Lux is of the view that the synergy between mediation and arbitration may perhaps be the next step in the development of mediation. 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.