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Successful litigants can be made to pay for bypassing mediation - Jonathan Lux talks to IHS Fairplay magazine

This article first appeared in IHS Fairplay, and was written by Nick Savvides, the magazine's technology editor

An increase in the uptake of mediation in maritime disputes, which substantially reduces costs, has been aided by judges awarding costs against the successful litigant if they had refused mediation before the case came to court, according to a leading maritime legal expert.

Jonathan Lux, mediator, arbitrator, and barrister at London-based St Philips Stone, said that a number of cases have seen companies ignore mediation requests prior to the case coming to court, and that potential savings for each litigant can run into hundreds of thousands of dollars for the heavy cases, particularly those involving shipyards, which are often very detailed and lengthy cases. This has driven the shift to alternative dispute resolution (ADR).

Lux described a recent dispute between an owner and a charterer, in which the latter had refused to take delivery of a vessel as it had arrived late. The owner was suspicious that the charterer wanted to fix at a lower rate in what was a deteriorating market, and began proceedings for a breach of contract.

At mediation, the original dispute was bypassed and the mediator suggested a mutually beneficial solution, with the charterer agreeing to give the owner specified cargoes at a specified rate and the freight for the carriage was calculated through an agreed formula.

“There was no cost to the charterer because he still needed to move his cargo and it was beneficial for the owner as he had guaranteed employment for his vessels,” explained Lux. “No judge or arbitrator would have the power to find such a creative and innovative solution.”

Furthermore, the costs for settlement were considerably lower than if the case had gone to court, and Lux pointed out that the mediator had “preserved the relationship between the [business] partners”.

ADR has been so successful at cutting costs that some lawyers have an alternative definition for the acronym: ‘alarming drop in revenue’, according to Lux. He said that with average dispute cases, the first 20% in costs can yield 80% of the necessary evidence, while the next 80% of costs would be spent on gathering the remaining 20% of the evidence.

In cases that involve shipbuilding, the savings through mediation can run into hundreds of thousands of dollars as evidence is often dense and complex, which means that costs for each litigant can reach as much as USD1 million or more. Using Lux’s ready reckoner, ADR could save a total of USD1.6 million in costs and a lot of aggravation if the protagonists enter into mediation, as one owner and shipyard did recently.

In this case the owner claimed that a vessel delivered by a yard was still under guarantee and that repairs to defects in the ship should be carried out by the yard.

In mediation the yard agreed to pay a proportion of the costs for the remedial works and to extend the guarantee on certain items; this saved both litigants many thousands of dollars, said Lux.

Further savings can be made by a process that Lux calls early neutral resolution (ENR). By employing a neutral person, not initially as a mediator but as someone that could identify the core issues in a dispute and direct the collection of relevant documents, the neutral person would identify what other documents may be necessary, set a deadline for the collection of documents and a route map for the resolution of the dispute that may well include mediation.

Through ENR the process of mediation is streamlined, focusing on both parties in the dispute on the core issues. The resolution of those issues, through ENR costs, could be cut even further according to Lux.

“Lots of disputes see mediation taking place at a later time than is possible, and that might be because lawyers are understandably cautious, but through ENR cases can be resolved within a shorter timeframe, taking even more cost out of the system,” explained Lux.

Mediation in the United Kingdom is developing fast but Lux said that in EU countries the support for mediation is also very high. Nevertheless, he believes that the United Kingdom is ahead of Europe.

However, Lux also pointed out that the United States “was the birthplace of modern mediation and that happened within the last 50 years or so, probably because the costs and delays in the litigation process were most acute in the US”.

US mediation practices can vary from state to state and from district to district, with some states requiring mediation and others not, according to John D Kimball, Co-Chair, Maritime and International Trade Practice Group at the Blank Rome law firm in New York.

Kimball confirmed that the state of Texas required mediation as a first step to conflict resolution, and that other states had also made mediation mandatory with the system applied in various ways throughout the United States but added that the form of mediation varied considerably, depending on the state, the mediator, lawyers, and those in dispute.

“Some mediators are quite formal; they need written submissions and they maintain a formal structure to the proceedings, while others have a less formal structure and the mediator takes a more relaxed approach,” Kimball explained.

He added that mediation relied heavily on the protagonists and whether they wanted the mediation to succeed. As such, some judges would order a mini-trial without witnesses and with the minimum of evidence so that the parties could see the strengths and weaknesses of their case. At the end of the mini-trial the judge would often provide give an indication of how he or she would rule in the case.

The idea of the mini-trial is to allow litigants to understand how a full trial would play out and see if mediation could be a far more cost-effective avenue for all concerned, even if the outcomes were not entirely to their liking.

Lux believes that any dispute is susceptible to mediation but that through the ADR process disputes can more often be resolved quickly, reducing antagonism and at far less cost than court proceedings or arbitration. A more flexible approach could potentially provide a more effective solution.

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