Levelling up of mediation in the arbitration-centric world of shipping

Shipping is often seen as a business that serves cross-border trade. It is also one of the oldest trades in the world and dispute resolution in shipping is dominated by the use of arbitration when negotiations break down. The attraction of arbitration in terms of global enforcement has been a key driver in shipping because of the high number of contracts involving multi-jurisdictional contracting parties.

In the last decade, efforts have gained momentum towards the promotion and adoption of mediation as a form of Alternative Dispute Resolution (“ADR”) to bridge the gap between negotiation and arbitration. Detractors have often cited the problem of limited court-assisted enforcement for mediated settlement agreements on a global level as a disadvantage when considering mediation during contractual negotiations. By comparison, arbitral awards enjoy enforceability under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) which has been recognised by over 150 countries.

Nevertheless, the attraction of substantial costs and time savings in mediation is significant. Markets for global shipping and related oil and gas industries have been in a severe slump for the past 2 years with no prospect of any real recovery for the foreseeable future. The size of claims arising from contractual disputes in these markets has also shrunk. Disputants are now acutely aware that the costs of recovery through an adjudicatory process have become significantly disproportionate to the size of many of these claims. Furthermore, many of the contracts concluded in these markets are characterised by personal relationships cultivated over many years. The employment of mediation for dispute resolution is thus particularly suitable for them as it enhances the chances of relationships previously strained through conflict to be restored, thereby brightening the prospects for the development of future business. The mediation process also confers upon the parties the ability to craft creative commercial solutions and to have control over the outcome.

The Singapore Chamber of Maritime Arbitration ("SCMA") introduced an Arb-Med-Arb protocol in its October 2015 release of its Rules to facilitate the dovetailing of mediation into its widely accepted arbitral process. This protocol was launched at SCMA’s Annual Conference to underscore the important role of mediation in the arbitration-centric world of shipping. This was with a view to facilitating a mediated settlement agreement being reached to become an arbitral award by means of a consent award. In this way, a mediated settlement agreement would enjoy the “best of both worlds” benefits of being cost and time-effective whilst enjoying ease of enforcement under the New York Convention as a consent award.

The Singapore Mediation Centre ("SMC") is designated as a choice of mediation service provider in the SMCA Arb-Med-Arb protocol. For more information on mediation, please visit www.mediation.com.sg.

This article was contributed by Lee Wai Pong. Wai Pong acts as a Consultant to SMC to spearhead our plans to promote awareness and usage of mediation in the maritime, oil and gas sector. Wai Pong was previously Executive Director of SCMA and was instrumental in developing the Arb-Med-Arb protocol.

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