Presented By: Jayems Dhingra, Chartered Arbitrator

 

ABSTRACT

Before I share with you the practice of Mediation from Offshore & Marine Industry perspective, I prefer to give you a snapshot of the origin and concept of mediation. You might have listened to excellent presentations and many of you may be are practicing mediators, so the mediation process is not new to you. Its origin is with the creation of mankind. So mediation is a virtue, one must have inherited this art from Adam or Father Abraham. The Scriptures tell the story how Abraham acted as a mediator between God and the people of Sodom. Mosses mediated between Israel and Pharaoh of Egypt. For Christians Jesus Christ is the everlasting mediator between men and God. Prophet Mohammad also said, “To make reconciliation between people that are in dispute, is a virtue higher than praying and fasting.” Therefore all the mediators with a track record of 100% success, you don’t need to fast and pray. You have already done a great service to the mankind.

Rejoice! God is well pleased with you!

In all cultures and religions, people conducting mediation and conflict resolution are given a noble place and recognition. If you think all this is history and before your time, then let us look at the latest endorsement from UN Secretary General His Excellency Mr. Ban Ki-moon. In the Foreword to UN Guidance for Effective Mediation, I have picked the two points, which to me are of great wisdom:

  1. Mediation is one of the most effective methods of preventing, managing and resolving

The cautionary note to this statement is:

  1. Ad-hoc and poorly coordinated mediation efforts – even when launched with the best of intentions – do not advance the goal of achieving durable peace.

So the bottom-line is, in any conflict or dispute, Mediate first, but, through a well-structured process, administered by a proper institution, like the one we are in today – the KLRCA.

Now moving on to my main topic, in Offshore & Marine, though negotiations is still the main forum for dispute resolutions, but mediation is not so evident. The popular successful mediation was in the case of Brent Spar Decommissioning dispute. The recommendations of Woolf reforms were also given to Admiralty court. The impetus for mediation in O & M has increased now, due to the court of appeal decision in the case of PG II vs OMFS in 2013, which makes the silence or non-participation in mediation as an unreasonable conduct. This will have an impact of cost sanctions in court cases but if same is true for arbitration, there isn’t much information available.

The root cause for lack of importance given to mediation as a first step in dispute resolution, in Offshore & Marine industry, is due to extensive use of industry standard forms, so called Standard preprinted Charter Party Forms, available online, either free or at a nominal cost for almost all types of ships and nature of engagement.

The review of the Dispute Resolution Clause in such forms will lead to universally known one message, that is, when in dispute, Go to London first and then see what to do next!

Unlike construction contracts, Oil & Gas, Power Plants and other infrastructure projects, in Charter Party Forms, you will not find any such sequential dispute resolution process. The parties rarely indulge in negotiations about dispute resolution clause and often end up with a default clause: with either arbitration in London or reference to English Courts. In some forms, Mediation Option is hanging loosely in the end after the arbitration clause.

The default provisions are full of pitfalls for the parties unfamiliar with ADR forums. Taking an example of most commonly used Dispute Resolution Clause, a quick critic’s review, reveals that, first the parties with no or remotest connection with London, will end up adopting English Law and London as seat of arbitration, by an unadministered ad-hoc mechanism under LMAA terms. Perhaps that is the reason that most of the arbitral award challenges and appeal cases in maritime and shipping industry, are from English Case law. The shipping community has been financing for more than a century, the development of Admiralty laws through courts of England.

Now, let us look at a default Mediation Clause: for it to function properly, it requires the parties to devote considerable thought and time, while they are negotiating a Charter Party whether for one voyage or for few years duration. The key pointers or lacunas, if I may say so, are:

  1. It is presumed that mediation is after arbitration has commenced;
  2. If the parties can’t agree on the choice of mediator, then the arbitral tribunal may designate a mediator;
  3. The place, procedure and terms will be such as the parties may agree; and
  4. Next hammer on the head of poor mediation process is that, the arbitration procedure shall continue during the conduct of mediation.

One must be wondering, what is the benefit of such a loosely formed mediation clause? How many time parties can initiate mediation? Which is the right stage for mediation clause to be invoked? If the parties are at dispute, will they agree on so many undecided aspects of mediation? How the sincere and genuine party can claim for cost sanctions if the other party has refused or manipulatively avoided mediation?

In two recent unreported cases, the respondent requested mediation before responding to the notice of arbitration, by proposing a mediation Centre and mediator to be appointed by the mediation Centre. The Claimant ignored the request. The respondent made submissions to the arbitrator requesting costs sanctions for refusing to participate in the mediation. The arbitrator ignored the submissions and did not question as to why the Claimant has not responded to the request for mediation. Claimant simply notified the arbitrator that the respondent’s proposed mediation Centre was not in accordance with the Charter Party. Then after eight months during the week of oral hearings and witness examinations, the Claimant proposed mediation by nominating an individual mediator chosen by the Claimant. Technically or tactically speaking, the Claimant is seen to be complying with the mediation clause. By that time respondent being frustrated, had already abandoned the arbitration. So you may wonder if such a case goes to court then whether the case law or regulations favoring mediation first, will be of any help!

To avoid such uncertainties and ambiguities, I propose to the parties, first and foremost delete the default clauses Dispute Resolution Clauses. Then think with a fresh and clear mind of two willing parties negotiating a Charter Party Agreement. Lay down the sequential stages, one step at a time for resolving any or all disputes under or related to the CPA.

For example, Negotiations, then Mediation and if unsuccessful, then followed by arbitration. The easiest way is to choose a Model Clause like this which is from AIPN Model Dispute Resolution Clause. In the blanks one can fill in KLRCA or an institution of choice by the parties. In this Model Clause, mediation is a precondition to arbitration.

Mediation should be conducted in jurisdictions like Malaysia, Hong Kong, and Singapore, where a settlement agreement can be converted to a court order under the Mediation Acts of the respective countries.

 

For more details, contact your legal advisors or Tiberias MC for prudent advice!

Thank you for your attention!