DOES MEDIATION HAVE A PLACE IN INTERNATIONAL MARITIME DISPUTES?
Rodney M. Elden
Irene E. Ziebarth
A. Taxonomy of Maritime Disputes
It is not news to a gathering of maritime arbitrators that dispute and controversy are endemic to ocean transport. At last count there were 25,493 ocean going ships of over 1,000 gross tons registered and there were 3,500 ports listed in the world port index. Considering that each port has its own custom and practice and that each voyage and cargo touch at least two ports where low water may vary from 16 feet at Tumaco to 100 feet at Bantry, it is surprising that arbitrators and mediators do not have a vast waiting list of clients.
Given the breadth of the world's oceans and the vast number of dissimilar voyages and cargoes carried, the maritime branch of world trade generates an almost infinite number of financial transactions each year. Formal disputes generate briefs, reply briefs, and foot high stacks of exhibits documenting thousands of expense transactions that purportedly relate to claims and counterclaims. In 1954 in the early days of the opening of the Orinoco River, a time-chartered owner went so far as to submit claims for the cost of limes to protect his crew from scurvy in the tropics; presumably the charterer had breached "medical" institute warranty limits.
Many ships escape major litigation or claim throughout their working lives because of owners who always give a bit more than specified in the charter party or contract of affeightment. There are of course at least two sides to each contract dispute and this was well know by that well traveled Englishman, Rudyard Kipling, who observed:
"Who can doubt the secret hid under Cheops pyramid was that the contractor did Cheops out of a million quid!"
The Index & Digest of the Award Service of the Society of Maritime Arbitrators from 1990 to 1994 reveals major areas of dispute encountered in the maritime industry. This digest, tirelessly edited by Michael Marks Cohen of Burlingham Underwood covers selected American cases and foreign arbitration awards published or summarized in English in various international publications. This period covered 480 actions or awards involving 427 ships and 746 principals and revealed the following major and minor areas of dispute:
MAJOR AREAS Number of Number of Issues %
Sub Areas Ruled Upon
ARBITRATION PROCESS 80 658 15
COGSA ISSUES 80 770 18
CHARTER TERMS 133 1484 34
DAMAGES 14 182 4
FREIGHT 8 126 3
MINOR TOPICS 32 1162 26
TOTALS 347 4382 100 %
While this analysis did reveal some technical issues, it was abundantly clear that the vast majority of issues were "children of the contract." Fully 67% of all issues ruled upon came from arbitration process, COGSA issues, and charter party terms and conditions. We plan to expand this analysis to cover the period 1979 to 1990 which we believe will reinforce the above findings.
B. The Goal of Dispute Resolution
Maritime clients, like others, seek dispute resolution to solve problems. The range of problems embraces differences in the amount in dispute, complexity, emotional content, and legal status. Identifying and helping clients resolve problems requires more than knowledge about relevant legal principles taught in law school and embodied in appellate law. A client's individual circumstances may suggest and shape satisfactory solutions. Thus two separate cases may involve the same legal problem but a solution that satisfies one may be unthinkable or unworkable in the other. Effective dispute resolution demands understanding of how each client's unique goals and needs intertwine with the legal issues.
Achieving this understanding requires knowledge in at least two broad areas not
directly linked with legal principles. The first concerns the context in which the problems are embedded. It is content based and its focus is industry knowledge. The second extralegal area focuses more on process than content. Clients come with differing degrees of knowledge, emotion, sophistication, and individual circumstance. Legal principle and contextual knowledge can lead to effective solutions only in a process which permits the extralegal content to be presented. While maritime arbitrations generally take place in the presence of both legal principles and industry knowledge, only mediation provides a forum for legal principles, industry knowledge, and individual circumstance.
1. Maritime Dispute Resolution.
The Federal Arbitration Act was enacted to help businesses engaged in interstate \commerce resolve disputes. Arbitration under its rules has become increasingly the favored way of settling disputes over maritime contracts and its procedures provide for the enforcement of maritime arbitration agreements in federal courts. Its provisions govern all maritime arbitrations conducted under the auspices of the Society of Maritime Arbitrators.
2. ADR: Alternative dispute resolution procedures.
Individual contracts, the laws of all fifty states in the United States, and most countries require Alternative Dispute Resolution ("ADR") for certain claims. Any format for resolving disputes without trial can be considered ADR. The most common and widely used formats are arbitration and mediation. Maritime arbitrations are a form of ADR.
The United States Attorney General, Janet Reno, has given her blessing to ADR at the federal level but with a modification; at the Department of Justice it is known as Appropriate Dispute Resolution. In her speech ADR And The Role of Lawyers As Peacemakers and Problem Solvers presented to the Los Angeles County Bar Association, May 1, 1998, Ms. Reno voiced a widely held belief that a trial date does much to bring a case to resolution. Justice Department attorneys are nonetheless urged to use mediation and arbitration as these procedures frequently bring resolution without trial. The benefits to the Department of Justice include, according to Reno, significant cost savings, more effective allocation of resources, faster resolution, and the opportunity to educate the other side in an informal atmosphere.
In September, 1998, Ms. Reno urged all major federal agencies to use ADR whenever possible to resolve internal disputes, contract disputes, and conflicts that arise in the day to day functioning of the United States government. She challenged them to "change the culture of the nation." Several agencies already have been successfully using ADR for several years. The Air Force trained over 1,400 civilian employees to resolve workplace disputes. The Environmental Protection Agency uses ADR to settle Superfund litigation while the Federal Deposit Insurance Corporation uses it to handle a variety of commercial disputes involving the regulation of financial institutions. The United States Postal Service overwhelmingly praised the process. Ms. Reno is expected to urge all law schools in the United States to add ADR courses to their curriculum.
While Roger Fisher of the Harvard Negotiation Project counsels in favor of trial as a resolution tool when it is one of the best alternatives to a negotiated agreement, his three books teach ADR technique and process.
"The reason you negotiate is to produce something better than the results you can obtain without negotiating. What are those results? What is that alternative? What is . . . your Best Alternative To a Negotiated Agreement? That is the standard against which any proposed agreement should be measured. That is the only standard which can protect you both from accepting terms that are too unfavorable and from rejecting terms it would be in your interest to accept." Roger Fisher, William Ury, and Bruce Patton Getting to Yes: Negotiating Agreement Without Giving In (Penguin Books 2d ed. 1988) pp. 97-106.
Unless otherwise prohibited by contract or statute, trial is a powerful and potentially dangerous alternative to a negotiated agreement. But if you could get something better by negotiating, why would you go to trial?
Arbitration is the most widely recognized form of ADR. It may be court ordered or consensual, binding or non binding. Like a trial judge, an arbitrator or arbitration panel has the power to make decisions binding upon the parties.
Most maritime arbitrations take place in New York and London. California is the site of more than 30% of commercial non-maritime arbitrations, followed by New York, Texas, Florida, and Illinois. Arbitration has long been favored as a fast, efficient, and economical way to resolve disputes and U.S. courts give great deference to arbitrators.
There has been an enormous increase in the number of cases arbitrated and mediated. In 1994, the American Arbitration Association reported a 60% increase in the number of cases filed for arbitration; in 1997, the number of cases filed exceeded 78,000. JAMS/Endispute, a private dispute resolution company based in Irvine, California, has experienced a 20% per year growth rate in the number of cases filed nationwide; however 85% of those cases are submitted for mediation. In 1997, over 20,000 cases were submitted.
Mediation is a process in which a neutral person facilitates communication between the disputants to assist them in reaching a mutually acceptable agreement. Unlike a trial judge or arbitrator, a mediator has no power to force the parties to do anything they don't want to do. The settlement is theirs. A mediation is not won or lost; when it's over, it was either successful or not. If it was successful, the parties have resolved the matter themselves and memorialized their agreement in a written document signed by all the parties present. If the mediation is not successful, they may either file a lawsuit and proceed through the courts for resolution or use arbitration to resolve the dispute. Mediation lets the parties determine the outcome and may take place at any time before or after a lawsuit is filed.
There are many factors which influence the determination of which ADR process is appropriate in any given situation. The factors, like the companies, individuals, and situations which drive the disputes, are by their very nature interactive and dynamic. The answer as to which ADR process is appropriate may change throughout the dispute resolution process. As a general principle however, there are factors which weigh in favor of mediation, and others which weigh more heavily in favor of arbitration.
Factors that favor mediation include:
a) the business relationship could continue or be resumed;
b) it is desirable to be able to control the outcome of the dispute;
c) the position of each side has merit, and arbitration could well result in either side prevailing;
d) arbitration preparations would be costly and protracted;
e) a speedy resolution is important;
f) the dispute raises highly technical or other complex factual or legal issues;
g) the law on the determinative legal issues is well settled;
h) an adverse precedent needs to be avoided;
i) no further discovery is required, or limited discovery will suffice, for each side to assess its strengths and weaknesses;
j) the case lends itself to settlement before an arbitration award is made;
k) a presentation by each side of its best case will help promote a better
understanding of the issues;
l) a strong presentation will give one side or the other a more realistic attitude about the case;
m) a mediator could help diffuse the emotion or hostility which may bar a
settlement of the dispute;
n) the evaluation of a neutral advisor could help break the stalemate;
o) there is a potential for a runaway verdict based on sympathy with the plight of the other side; and
p) neither side really wants to arbitrate.
Factors weighing against mediation and favoring binding arbitration include:
a) a vital corporate interest is involved;
b) there is no bona fide dispute; the other side's case is without merit;
c) the advantages of delay run heavily in favor of one side;
d) the case most probably can be settled in the near future through simple unassisted negotiation;
e) the other side has no motivation to settle because of expectations of a large judgment or a highly emotional stake in being vindicated;
f) more time must elapse before each side's positions and the settlement
possibilities can be evaluated;
g) one side is refusing to settle so as to send a message to others who are not parties to the case; and
h) the negotiating abilities of the client are weak.
5. Case studies: measurement
Ordinary civil cases already resolve in increasing numbers and at less expense by mediation. The popularity of mediation is driven by consumers who are attracted to a dispute resolution process that gets the job done in less time for less money. A national survey of general counsel and outside attorneys in the United States on the subject of ADR revealed that corporate in-house counsel viewed mediation as the preferred alternative. The survey was conducted by the accounting firm of Deloitte & Touche in 1996. An earlier survey by the same firm in 1993 reported 51 percent of in-house counsel chose arbitration as their primary type of ADR, with 41 percent listing mediation. As reported in March, 1997, the preference flipped: only 28 percent of in-house counsel listed arbitration as their preferred form of ADR, with 65 percent of them preferring mediation. Gregory T. Higgins, William D. O'Connell, The National Law Journal, "Mediation and Arbitration Square Off" (March 24, 1997).
Of the 17,000 cases submitted to JAMS/Endispute for mediation, almost 15,000 settled by agreement of the parties.
The growth of mediation is not limited to the United States. "While arbitration may be said to have grown steadily, the use of mediation has grown significantly in recent years in New Zealand." Paul David, ADR in New Zealand-Recent Developments, ICMA XII, Paris, June, 1996.
Maritime cases resolve most frequently by contractual arbitration because the parties perceive arbitration as less expensive and more efficient than trial. In the study above, in-house counsel and litigators gave key reasons for the success of ADR as cost savings and better results.
As early as 1993, the Wall Street Journal credited individual companies with bringing mediation from the fringe of the legal profession to the mainstream. It cited law firms as having no financial incentive to give up three, four, or five year litigations to be resolved in a matter of months or weeks. The financial incentive came from private companies such as General Motors and Chevron and insurers such as State Farm, Cigna, and Reliance looking for a less expensive alternative to traditional dispute resolution.
6. What do the parties to maritime arbitration have to gain by mediation?
The short answer is: control. Parties to mediation have control over the process and control over the outcome. Analysis of dispute resolution options makes one wonder why any company which could use mediation and retain control of the outcome would choose arbitration. No self respecting business person would willingly give up control of the business to a disinterested third person. Why would that same business person give up control of the company's dispute resolution process and outcome to an arbitration panel?
Mediation provides consensual resolution versus imposed remedies; it empowers parties to reach settlement structured to their needs. Mediation allows the parties to be directly involved in the process; it allows parties to resolve disputes and maintain business relationships, and opens up possibilities for resolution not provided by litigation.
Mediation is a process, usually orchestrated by one mediator. Replacing three panel arbitrations with mediation therefore at first blush puts two arbitrators out of work. However, with the increase of mediation requests filed and natural attrition, there actually may soon be, as there are in the private sector, more requests for mediation than arbitration. Complex civil cases frequently benefit from two mediators: one to work on liability and damages and the other to work on insurance issues. Two or more mediators also may divide classes of parties and work individually within those groups. In large construction cases, one mediator may work with a large group of subcontractors while the other works with the prime contractors. Those arbitrators who want to learn a new process of dispute resolution may willingly leave arbitration behind and focus exclusively on mediation.
Mediation, immediately followed by arbitration and sometimes called Med/Arb is also increasingly popular. It is most often used where the parties can agree to having the same mediator act as sole arbitrator if the matter does not resolve during mediation; but it is sometimes used with separate mediator and arbitrator or single mediator and arbitration panel with three different persons.
Leaving arbitration behind, or at least in reserve, is most often, a smart business alternative. Critics of arbitration say it is full of pitfalls. Rules for introducing evidence are not as strict, less information is discoverable, and rules for conduct of the arbitration are fashioned on the fly. There are few rules of evidence and seldom any basis for appeal. Arbitration sometimes isn't the speedy process its supporters claim it is. Statistics on the average wait for an arbitration hearing don't exist but horror stories abound.
7. Who are the ultimate winners and losers?
There are no losers in mediation. It saves time and money for the client. It is ultimately more fulfilling for the dispute resolution professional because collaborative resolution is inherently more fulfilling than wielding Solomon's sword. When it's over, everyone is happy (or only mildly unhappy, the test of a truly excellent settlement). The mediator has been paid in advance and has no further work to do. No award is required because the settlement is memorialized in writing and signed by the parties at the end of the mediation session.
Going through a mediation may also educate the parties on techniques they might use themselves to prevent a dispute from ever getting to the point of needing a neutral to help resolve it. In-house corporate programs which teach dispute resolution process almost always result in dramatically lower costs because dispute resolution process can be learned and used successfully by non professionals.
8. How mediation might be implemented in international maritime dispute
The easiest way to implement mediation is to agree to it. Since it is at its core, collaborative, if the parties agree to it, it can occur even without contract provisions mandating it. They can agree to mediation before traditional arbitration and see what happens.
Mediation can also be added to contracts. The Society of Maritime Arbitrators provide a model conciliation clause and the California Association of Realtors standard form contract for residential purchase and sale agreements provides for mediation before arbitration before trial. At least 85% of the cases submitted for mediation settle there. Parties are encouraged to try mediation since failure to attempt mediation may preclude a party from an award of attorneys fees otherwise awardable under the contract. Some sample provisions are provided below.
Sample Provision No. 1 :
Where, in the event of a dispute arising out of or relating to this contract, the parties wish to seek an amicable settlement of that dispute by conciliation, the conciliation shall take place in accordance with the Rules for Conciliation of the Society of Maritime Arbitrators, Inc. of New York then in force.
Sample Provision No. 2:
Mediation: The parties to this agreement agree to mediate any dispute or claim arising between them out of the Agreement, or any resulting transaction before resorting to arbitration. Mediation fees shall be divided equally among the parties involved. If any party commences arbitration without first attempting to resolve the matter through mediation, then that party shall not be entitled to recovery of attorney's fees even if they would otherwise be available to that party in any such arbitration.
Arbitration: [parties insert standard provision]
Sample Provision No. 3:
Mediation Followed by Arbitration. The parties agree that any and all disputes, claims or controversies arising out of or relating to this agreement shall be submitted to JAMS/Endispute, or its successor, for mediation, and if the matter is not resolved through mediation, then it shall be submitted to JAMS/Endispute, or its successor, for final and binding arbitration under the rules of the Federal Arbitration Act and processes of the Society of Maritime Arbitrators. The parties will cooperate with JAMS/Endispute and with one another in selecting a mediator from JAMS/Endispute's panel of neutrals, and in scheduling the mediation proceedings. The parties covenant they will participate in the mediation in good faith, and that they will share equally in the costs. All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees, experts and attorneys , and by the mediator or any JAMS/Endispute employees, are confidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving the parties, provided that any evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in mediation. Either party may initiate arbitration with respect to the matters submitted to mediation by filing a written demand for arbitration at any time following the initial mediation session or 45 days after the date of filing the written request for mediation, whichever occurs first The mediation may continue after the commencement of arbitration if the parties so desire. Unless otherwise agreed by the parties, the mediator shall be disqualified from serving as arbitrator in the case. The provisions of this clause may be enforced by any Court of competent jurisdiction, and the party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including attorneys' fees, to be paid by the party against whom enforcement is ordered.
9. Mediation is a viable alternative to maritime arbitration.
The framework for mediation exists in well recognized formal process clauses, rules, and procedures. Commercial dispute resolution organizations, both non-profit and otherwise, have been in business for the sole purpose of resolving disputes since ships owned by Phoenicians carried the cargoes of Greek traders.
Roger Fisher's Beyond Machiavelli: Tools for Coping with Conflict (Penguin Books 1994) focuses on international conflict resolution providing insight into disputes between North and South Korea, the United States and Iraq, Egypt and Israel, among others. Fisher's students at the Harvard Negotiation Project reported enhanced abilities to resolve all sorts of personal disputes whether with roommates, parents, or landlords.
The analytic tools and process guidelines, which enable a mediator to analyze any conflict and to figure out why a conflict has not been settled enable the development of new approaches and fresh ideas to kick start the mediation process on the road to resolution. There does not appear to be anything inherent in maritime activities which would preclude mediation.
Rodney M. Elden is a management consultant and maritime arbitrator. The author of Ship Management: A Study in Definition and Measurement, he is a member of the Society of Maritime Arbitrators in New York.
Irene E. Ziebarth, Esq. is a California attorney. She is a mediator and arbitrator with JAMS/Endispute, a global dispute resolution company with offices in the United States. Ms. Ziebarth specializes in business contract, real estate, and construction disputes.
The authors presented this paper at the XIIIth International Conference of Maritime Arbitrators in Auckland, New Zealand , March 1-5, 1999
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The Society of Maritime Arbitrators ("SMA") provides Rules for Conciliation. For purposes of this article, the authors assume conciliation and mediation are interchangeable. See also "Mediation and Conciliation in Arbitration" by Hinorori Tanimoto presented at ICMA X , Vancouver, B.C., September 10, 1991, p.1 "The terms 'mediation' and 'conciliation' appear to be used without distinction...."SMA Model Conciliation Clause. The SMA Rules for Conciliation, adopted in 1988, follow the UNCITRAL Conciliation Rules adopted by the United Nations in 1981.