Bridge over troubled waters
5 August 2002
Dispute resolution in the maritime and international trade sector has comprised mainly of court proceedings in the Commercial and Admiralty Courts and arbitration proceedings conducted according to the rules of associations such as the London Maritime Arbitrators Association (LMAA) or trade associations such as the Grain and Feed Trade Association (Gafta).
While alternative dispute resolution (ADR), in particular mediation, has been actively encouraged in the UK in recent years, there is a perception that the shipping sector has not been as active as other sectors in using ADR. This is borne out by statistics published by the Centre for Effective Dispute Resolution (Cedr) about the number of commercial mediations referred to it in 2001/02. Of the 15 types of dispute listed, only 2 per cent of mediations involved shipping disputes, followed by insurance with 3 per cent. Construction disputes saw the most action, with 12 per cent.
But while there might be some reservation in the shipping sector regarding the use of ADR, other examples show that the shipping sector has accepted and is using it to a greater extent than the Cedr statistics indicate, in particular mediation and expert determination. Provision for expert determination in respect of regulatory or technical issues is common in many ship-building contracts and has been for some years.
ADR and the court
Since the introduction of the Civil Procedure Rules (CPR), the Commercial and Admiralty Courts have been active in encouraging parties to use ADR. The CPR impose a duty on the court to encourage, and on the parties to seriously consider, ADR.
In the Commercial and Admiralty Courts, the case management information sheet to be lodged with the court before the case management conference contains specific questions relating to ADR that must be answered by the parties. The parties can request an adjournment while the possibility of settlement by ADR is explored. Even if the parties do not wish the dispute to be referred to ADR, the judge may adjourn the proceedings and insist that the parties explore the option. If ADR is not pursued and/or the matter fails to settle, the parties have to write to the court explaining what steps have been taken and why they failed, before the court will arrange the case management conference.
A further warning shot was fired by the Court of Appeal in Dunnett v Railtrack to those parties that refuse to consider ADR or mediation. The Court of Appeal declined to award costs to Railtrack, the successful party, because it had unreasonably refused to consider mediation.
ADR and arbitration
In the past, arbitration was itself considered a method of ADR, but the 'legalistic' procedures and level of costs involved now cause many clients to equate arbitration with court proceedings. Perhaps as a result of this, arbitration bodies are recognising the need to offer ADR services. The LMAA has recently published the 'LMAA Mediation Terms' to replace 'Conciliation Terms', which were infrequently used. Similarly, in January last year, Gafta introduced its form of mediation rules. Few mediations have been conducted through the LMAA or Gafta, although it is expected that the number will increase and the role of shipping arbitration bodies in promoting and providing ADR services is likely to become more significant in the future.
Other ADR providers
Cedr is well known in the field of commercial mediation. Although it reported a 28 per cent downturn in its cases over the past year, this is likely to increase since the decision in Dunnett v Railtrack. In an effort to increase its usage, a group of solicitors and trained mediators from leading shipping law firms are working with Cedr to form a specialist maritime panel.
There are also other bodies that offer mediation services to the shipping sector. Alternatively, clients and solicitors who are experienced in ADR often appoint a mediator directly without using any formal mediation body.
Clients' response to ADR
Many clients in the shipping sector are aware of the benefits of ADR and mediation. ADR procedures are more likely to preserve business relationships than contentious proceedings and they are also more flexible in a mediation in the terms of settlement. At least one major international trading company has incorporated a mediation clause in its charterparty and sale contract terms, and more are likely to follow.
Clients' enthusiasm for ADR may vary depending on their objectives, their understanding of the relevant procedure and their experience. Clients may wish to fight a dispute for various reasons - they may wish to clarify or establish a point of law of importance to them or their trade, for example.
Further evidence of the demand for ADR in the shipping sector can be seen in the Baltic and International Maritime Council's issuing of its new dispute resolution clause in January 2002, which has been amended to incorporate a comprehensive mediation clause.
Shipping is, by its nature, international, so shipping lawyers are increasingly likely to become involved in ADR in other jurisdictions. The US, Norway, China, Greece and many others have established ADR procedures.
ADR, in particular expert determination and mediation, is now firmly established in the shipping sector, probably to a greater extent than the statistics suggest. While there will always be cases that parties will want to fight, these are in the minority. With the increasing concern of clients to resolve disputes quickly and cost-effectively, there is no doubt that use of ADR in the shipping sector will continue and increase. n
SiâFellows is an international trade and commodities consultant at Richards Butler
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