Shipping can no longer afford to shun mediation

In light of developments in the UK in1999, Suzanne Starbuck looks at the progress of mediation as a form of ADR, and to what extent is it used in the maritime world, and asks what the future holds for mediation in the new millennium

MEDIATION has long been a well-accepted part of commercial life in Australia, Canada and the US. Although the UK has been somewhat slower to embrace it, recent developments have brought about a slow but significant shift of opinion within the maritime and legal communities.

The publication in 1996 of Lord Woolf's report on the civil justice system in England and Wales ushered in the most fundamental overhaul of the system in the UK for more than fifty years. The report contained over three hundred recommendations for solving problems involving the civil justice system, including an excessively adversarial environment, excessive and unaffordable cost, undue delay, and over-complexity. Among other things, the report encouraged the resolution of disputes without recourse to litigation. As a direct consequence of the report, the new Civil Procedures Rules (CPR) came into effect on April 26 last year, giving judges the power to stay a case and direct, or even order, parties into mediation.

The UK-based Centre for Dispute Resolution (CEDR), founded in 1990, is a leading body in Alternative Dispute Resolution (ADR), dispute management and conflict prevention. Since April last year, it has reported a dramatic increase in the number of court-referred mediations. April to September 1999 saw a 100 per cent rise in mediations, compared to the same period in 1998.

CEDR director Bill Marsh says the new Civil Procedure Rules have given mediation greater credibility and heightened awareness among lawyers. "Mediation has moved from the fringe to mainstream," he adds.

Litigation and arbitration can be costly, time-consuming and confrontational, with parties afterwards frequently going their separate ways, never to do business together again. Mediation offers an alternative to traditional dispute resolution but, most importantly, puts control over the outcome into the hands of the parties involved.

Mediation can be used pre-litigation or arbitration, or at any time during the case. This ability to refer to mediation at any point means that cases are reaching settlement much earlier than usual, saving time, money and management costs.

The average mediation settles within 1.1 days, and the saving per party is in the region of £86,000. One party even reported a saving of £1.5m. Confidentiality and flexibility are also features of mediation. As only the parties involved know that mediation is taking place, company names, information and reputations are kept intact. By encouraging face-to-face negotiations, long-term relationships are more likely to be maintained, or even strengthened, through the use of mediation.

Court cases can require the involvement of senior members of a firm for months on end. Successful mediation also requires the key decision-makers of the parties to be present, but for a much shorter period of time.

Mediation currently boasts an 80-85 per cent settlement rate, according to CEDR. However, those that do not settle on the day frequently settle in the following week, when the parties have had time to reflect on the negotiations. If a case still ends up in court despite mediation, it is normally a much leaner and fitter case, with many issues having already been resolved at the mediation stage.

"Mediation offers an alternative to traditional dispute resolution but, most importantly, puts control over the outcome into the hands of the parties involved"

If all this sounds a bit too good to be true, "it is important to realise what mediation can and can not do," says David Taylor, special adviser to the International Underwriting Association (IUA) of London. Mediation does not apply to all disputes. As a general rule, cases of allegation of fraud are not applicable, nor are multi-party cases where the parties are not all fully in agreement for the use of mediation.

Parties also fear that the other side is only agreeing to mediation to gain as much information about the case as possible before finally going to arbitration anyway. The emphasis here is placed on the lawyers and the mediators. The lawyers need to plan for all possible outcomes, with the ability to react quickly. "Keeping an eye at all times on the wider picture is key," advises Gillie Belsham, partner at Ince & Co. The mediator is also responsible for picking up on parties trying to gain an information advantage and stop proceedings if this becomes apparent.

Globalisation and consolidation in the shipping industry is creating fewer players, making the maintenance of relationships a priority. It might be assumed that this would be a key incentive to opt for mediation. In reality, mediation has been slow to take off in shipping with "only ten per cent of cases in the maritime field lending themselves to mediation," says Graham Clark, maritime arbitrator and CEDR accredited mediator.

The first hurdle in shipping is that arbitration is ingrained in the industry's history. Also, the parties involved in a dispute are normally located worldwide, making negotiating around a table a less feasible option. Many parties involved in a maritime dispute also want a legal ruling as they need to know where they stand on an issue not only now but for future reference.

Primarily, marine disputes normally take place after the event in question. This limits the scope for creative settlement. Having the parties and their legal representatives face-to-face around the table opens up the settlement possibilities beyond a purely financial payout. Mediation allows clients and lawyers to propose creative settlements such as future deals or discounts to help preserve long-term business - something that would not be possible in court.

Designed to promote ADR within shipping, the IUA and Lloyd's Underwriters Association (LUA) set up a joint working party aimed at informing and educating the market about the different types of ADR available, to ensure that the procedures and benefits are fully understood.

The introduction of a third-party neutral, or mediator, is the driving force behind a successful mediation. It is the mediator's job to discuss all the issues with the parties involved, both together and separately, to identify the possibilities for negotiation, and to help bring the dispute to a settlement. David Taylor describes a good mediator as a good listener, patient, quick to realise commercial and legal realities, and somebody who has mastered the issue in question. But he cites "winning and holding the trust of the parties" as the key to success.

Graham Clark, a broker for over thirty years, believes the skills gained as a shipbroker stand him in good stead as a mediator. Brokers need to be good at using initiative, questioning everything and acting as an intermediary to bring the two parties together - all the vital skills of a mediator.

Anyone of the opinion that mediation is the easy way out or soft option has probably never been involved in one. The role of the mediator is particularly tough as the parties are looking to him or her to help them find a solution. The desire to reach a settlement at the end of the mediation, normally after just one day, places an even greater burden on the mediator.

Substantial preparation is required if the mediator is to be thoroughly familiar with all the related issues. It is generally felt that it is better to have someone from a related field, as they can offer specialist knowledge, take the argument on board much easier and be better placed to make suggestions. Appointing an expert in the field helps "aid creative solutions," says Clark. However, it has been argued that a mediator from an unrelated discipline may be better able to see through to the heart of matter, more quickly. "Really it is a question of education," says Clark, adding that, no matter how senior a person is, they must never underestimate the need for proper training to fully appreciate the extent of what is involved.

"Lawyers do not necessarily make the best mediators," says Taylor. This may contribute somewhat to the sceptical and cynical reception mediation has received from the legal community. For many years, and still today to some extent, suggesting mediation was seen as a weakness by solicitors. The Woolf Reforms have helped to dispel this belief and to highlight the fact that, in reality, mediation is a very testing and rigorous process.

"Lawyers have nothing to fear from mediation, but they must recognise that it has a different focus. It is not about finding the legal winner, but about exploring rigorously whether settlement is possible, and the extent of the risks/exposures that litigation will entail. This will primarily be based on an assessment of the legal merits, but may include other factors as well," says Gillie Belsham.

The legal community has commonly been driven by the challenge of there being a winner and a loser in any case. Solicitors are now under increasing pressure to at least try mediation and certainly have a duty to advise clients of their options. "Those who have been involved are normally 100 per cent in favour of it. Those who are still sceptical are those who have never tried it. The smart lawyers have learnt how and when to use it and when not to," says Bill Marsh.

Lawyers stand to benefit greatly from mediation as the process requires very close co-operation between the lawyer and client, thus helping to cement the relationship long-term. David Taylor says "I would be very surprised if a serious commercial law firm does not have mediation at the heart of its litigation".

So, what does the future hold for mediation? The next 12-18 months should prove to be eventful times for all those involved. CEDR is currently running on average fifty mediations per month, but this is expected to rise to 80-100 during 2000. Although mediation is in a period of 'bedding in', with a tendency to try it in everything, this is expected to refine over time. The support of the courts is already doing much to improve the acceptability of mediation in shipping, where it is expected to begin to make small inroads as solicitors start to realise that they have to take it seriously.

The introduction of mediation clauses into contracts is also expected to increase as the time and cost savings of bringing disputes to settlement earlier are taken on board. P&I clubs are already looking to appoint mediators for this reason. Insurance is cited as a future growth area. Some insurers are very sophisticated in their use of mediation, whereas others are still using it on an ad hoc basis. Its use on a public or political level should also aid awareness, the recent work by Senator Mitchell in Northern Ireland being a particularly topical example of mediation at work.

As Graham Clark points out, most business is concluded and performed without dispute. Even when disputes arise, most are settled amicably either directly between the principles or via their intermediaries. Inevitably, some will end up in the hands of the lawyers. In such cases, mediation should be encouraged for speedy resolution.

David Taylor, meanwhile, has a phrase for the sceptics."Don't knock it until you've tried it".