The article discusses what mediation is, and what mediation clauses can be recommended for mediation.
The article shows the advantages of mediation conducted under the Russian law.
The article also considers a maritime dispute and how a mediator is managing such a dispute, how the parties to the conflict can come to a settlement of the dispute.
What is mediation?
Mediation is a method of conflict resolution. It is a process where a neutral third party helps the conflicting parties to cooperate with each other and to find a mutually beneficial solution.
Mediation is conducted by a person whom the parties trust and who, in the parties' opinion, may competently understand the dispute.
To resolve the conflict, the parties may choose one or more mediators.
A mediator is proficient in conflict resolution techniques, and his / her tasks include clarifying the factual circumstances of the case, identifying truly controversial issues and helping the parties to discuss these controversial issues.
Mediation is suitable both for cases where the parties would like to keep the relationship, and for cases where the parties do not intend to continue cooperation, but when they wish to peacefully terminate the contract or split the business
In maritime disputes, negotiation and mediation can be effective means of resolving conflict. Mediation allows you to save time, money, find a flexible solution and gives the parties full control over the process.
Mediation is based on the principle of voluntariness. The parties may terminate mediation at any time and proceed to the stage of considering the dispute in the court.
Mediation clauses and rules for the parties to a maritime contract
In the current market conditions, transport companies and insurers of the maritime market are especially in need of stability, maintaining relations, eliminating protracted conflicts and also, possibly, revising the terms of cooperation with clients.
Participation in a litigation or arbitration often heightens the conflict and leads to the fact that one of the parties is left as a loser, bears the costs of the litigation and other losses.
Sometimes the parties are in such a stage of the conflict that they cannot agree on a way to resolve it.
Therefore, in order for mediation really works, it is advisable to agree in advance (even at the stage of starting the cooperation) that in the event of a dispute, the mediation procedure will be used.
Mediation clauses, procedures should be approved in advance by the company's management, studied by lawyers and managers, and the parties are advised to be prepared for this method of resolving the dispute.
In order to prepare for this method of resolving a dispute, the parties study the regulations and standard rules of mediation procedure. You may also contact mediators to clarify any questions.
The German Maritime Arbitration Association (GMAA) suggests using the following mediation clause:
"Any disputes arising out of or in connection with this contract shall be submitted to mediation under the Mediation Rules of the German Maritime Arbitration Association.” The GMAA Mediation Rules can be found here: https://gmaa.de/index.php/en/mediation/mediation-rules
The London Maritime Arbitrators' Association published the Mediation Rules in 2002 (See: https://lmaa.london/wp-content/uploads/2020/08/mediationterms.pdf). The LMAA mediation rules can be applied if the parties to the contract refer to them in the mediation clause.
BIMCO suggests using the following mediation clause (according to this clause, mediation may also take place in the course of arbitration) (2020 revision):
“BIMCO Mediation Clause 2020
The parties may agree at any time to refer to mediation any difference and/or dispute arising out of or in connection with this contract. In the case of any dispute under this contract in respect of which arbitration has been commenced, the following shall apply:
(a) Either party may at any time and from time to time elect to refer the dispute or part of the dispute to mediation by service on the other party of a written notice (the “Mediation Notice”) calling on the other party to agree to mediation.
(b) The other party shall thereupon within fourteen (14) calendar days of receipt of the Mediation Notice confirm that they agree to mediation, in which case the parties shall thereafter agree a mediator within a further fourteen (14) calendar days, failing which on the application of either party a mediator will be appointed promptly by the Arbitration Tribunal (“the Tribunal”) or such person as the Tribunal may designate for that purpose. The mediation shall be conducted in such place and in accordance with such procedure and on such terms as the parties may agree or, in the event of disagreement, as may be set by the mediator.
(c) If the other party does not agree to mediate, that fact may be brought to the attention of the Tribunal and may be taken into account by the Tribunal when allocating the costs of the arbitration as between the parties.
(d) The mediation shall not affect the right of either party to seek such relief or take such steps as it considers necessary to protect its interest.
(e) Either party may advise the Tribunal that they have agreed to mediation. The arbitration procedure shall continue during the conduct of the mediation but the Tribunal may take the mediation timetable into account when setting the timetable for steps in the arbitration.
(f) Unless otherwise agreed or specified in the mediation terms, each party shall bear its own costs incurred in the mediation and the parties shall share equally the mediator’s costs and expenses.
(g) The mediation process shall be without prejudice and confidential and no information or documents disclosed during it shall be revealed to the Tribunal except to the extent that they are disclosable under the law and procedure governing the arbitration”.
By virtue of Clause (c) of the BIMCO Mediation Clause, a party to a dispute that has refused from an amicable settlement without compelling reason can be obliged to pay arbitration costs. Thus, BIMCO encourages the parties to the conflict to start negotiations and not abandon them, being in an emotional rush.
The Society of Maritime Arbitrators (https://www.smany.org/about.html) (USA, New York) recommends using the following mediation / arbitration clause:
“Model Mediation/Arbitration Clause
If a dispute arises under this contract, the parties may agree to seek an amicable settlement of that dispute by mediation under the Mediation Rules of the Society of Maritime Arbitrators, Inc. (SMA) of New York then in force. If there is then a mediation but it does not result in a settlement, or if the parties do not agree to mediate, the dispute shall be referred to arbitration … []”.
If the mediation is not successfully completed, the Parties may proceed to arbitration based on the Rules proposed by the Society of Maritime Arbitrators.
The Russian Arbitration Center similarly recommends the use of a mediation clause with the subsequent possibility of approving a mediation agreement in the form of an arbitration award on agreed terms (See: https://centerarbitr.ru/about/mediation/recommended-agreement/).
The RAC, however, does not administer the mediation procedure and, accordingly, does not have mediation rules.
In Russia there is a special institution - the Board of Mediators for Conducting Conciliation Procedures at the RF CCI, which proposes to use the following clause:
«Stipulation of Conducting Conciliation Procedure
Any and all disputes, differences or claims arising out of or in connection with this Contract (Agreement), before be settled in a manner required either by law or by this Contract (Agreement) shall be brought for conciliation procedure before the Panel of Mediators in Conciliation Proceedings at the Chamber of Commerce and Industry of the Russian Federation»
The Board of Mediators at the RF CCI has developed rules for mediation and has an administrative support and standard document flow for organizing mediation.
How is mediation regulated in Russia? The advantages of conducting a mediation procedure under Russian law
In Russia, the mediation procedure is subject to the Law on the Alternative Dispute Resolution Procedure with the Participation of a Mediator (Mediation Procedure) No. 193-FZ of 27 July 2010.
In accordance with the specified law, the application of the mediation procedure is carried out on the basis of an agreement of the parties, including on the basis of an agreement on the application of the mediation procedure.
A reference in the agreement to a document containing the terms of the dispute settlement with the assistance of a mediator is recognized as a mediation clause, provided that the agreement is concluded in writing (Сlause 1 of Article 7 of the Law).
The parties can determine the rules of the mediation in the contract (for example, on the basis of any standard rules) or provide a reference to the mediation rules approved by the organization that manages the mediation procedure.
The advantages of conducting a mediation procedure under Russian law include the following:
1) If the parties have resorted to an out-of-court dispute resolution procedure provided for by law (mediation procedure, mediation, administrative procedure, etc.), the limitation period is suspended for the period established by law for conducting such procedure, and in the absence of such period - for six months from the date of the commencement of the corresponding procedure (see Clause 3 of Article 202 of the Civil Code of the Russian Federation).
2) If a dispute is being considered in an Arbitrazh (commercial) court, the court may, at the request of a party, postpone consideration of the dispute for mediation (see Paragraphs 2 and 7 of Article 158 of the Arbitration Procedure Code of the Russian Federation).
3) The mediation procedure can be used at any stage of the arbitration process repeatedly.
4) The mediation agreement reached by the parties as a result of the mediation procedure carried out without referring the dispute to a court or arbitration tribunal, in the case of its notarization, has the force of an executive document.
5) If the mediation agreement is approved by the court, then it has the force of an amicable agreement, which also makes it possible to enforce it.
6) The mediation procedure is confidential.
How does a mediator deal with disputing parties?
Using an example of a maritime dispute, I will show how a mediator may work with disputing parties.
Circumstances of the case:
A voyage tanker charter was entered between the Shipowner and the Charterer. During one of the shipments, a conflict arose between the Shipowner and the Charterer (also - the Respondent) regarding the payment of demurrage.
The shipowner decided to transfer his claims to a third party under an assignment agreement (hereinafter we will call this third party - the Claimant).
The Claimant argued that the amount of demurrage was confirmed by an act signed by the Shipowner and the Charterer.
The Respondent doubted the validity of the said act, since the date was missing on the act and since the Claimant could not explain how the act was signed, how it was received by the Claimant.
The Respondent used all possible strategies of defence. He doubted the signature on the act and the signature on the tanker voyage charter, he demanded an examination of the signature. In addition, the Respondent argued that even if the Respondent's signature was valid, the statute of limitations should be applied to the claim for payment of demurrage.
Before the Claimant addressed the Respondent with a demand to pay demurrage, the Respondent had already won another dispute with opposite claims against the Claimant, that is, the conflict was of a protracted nature.
How is mediation going in such a case:
At the first general meeting with the parties, the mediator listens to the official positions of the parties as if they were setting them out in court.
Then the mediator invites the parties to speak out about the true motives of the dispute, about what reasons, which were not voiced in court, became the basis for the conflict.
Thus, in the dispute above, the Shipowner, the Claimant and the Charterer are companies operating in the same small seaside region, the management of those companies were linked by common acquaintances in the same port, and by long-standing partnerships. But something went wrong.
If a party cannot speak in the presence of the other party, the mediator holds an individual meeting (caucus) with each of the parties, in which the true causes of the conflict, concerns and interests are investigated.
So, the mediator can find out during an individual meeting that there is a dispute of a personal nature between the parties, that one of the parties considers the behavior of the other party to be unfair, violating moral norms, personal agreements. Therefore, the current litigation between the parties has no real bearing on the conflict between them.
During mediation, the mediator invites the parties to suspend all litigation between them in order to consider their dispute on a set of issues. If the parties are involved in mediation, they promise each other not to start new litigation until after it is over.
The mediator shall find out who makes the decision on the dispute, so that the meeting is attended not only by representatives who need to coordinate every step with the owner of the company and who can distort the true positions and interests. The mediation should be attended by persons who can decide to end the conflict.
During the second meeting, the mediator assesses whether the parties want to maintain the relationship; indicates topics for discussion; and clarifies the conditions on which the parties are ready to come to a mediation agreement.
Discussion topics may be, for example:
1) Personal relationships of the parties: how should the behavior of the parties change so that personal relationships between them may change.
Here, the mediator can suggest how best to speak out about your interests and boundaries, without touching the personality of the interlocutor. The mediator can talk about assertive behavior and cooperative thinking. The mediator can also help the parties openly disclose their concerns if, for example, they have already reached mutual threats and blackmail, and remove emotional tension and various kinds of prejudices.
2) Commercial relationships: how to prevent vessel downtime, how to help each other in administering commercial processes, how to establish the exchange of messages and documents, whom to appoint responsible for the execution of one or another part of the charter, so that the interaction goes smoother.
In the aforementioned dispute, the parties could retain relations, since they operate in the same small market, meet in the same ports, and are, to some extent, neighboring companies. Their common interests included making profit from transportation and stable common work.
The litigations between the parties left the Claimant in a losing position. After a number of court cases, their personal relations have deteriorated so much that there could be no question of cooperation.
Unfortunately, at the time when the dispute arose between the Shipowner and the Charterer, they were not aware of the possibility of mediation.
The negotiations, which the parties conducted themselves, were not successful, since each party simply was proving the correctness of its position, based on the norms of the law.
If they turned to a neutral third party with relevant settlement experience, they could start talking about their common interests, and not about the texts of regulations and treaties and their different interpretations. This case could turn out to be much more rosy prospects for both of them.
Thus, if the participants in the maritime market would like to use the mediation procedure, then it is necessary to study the clauses and rules recommended by the associations of arbitrators and mediators for maritime disputes even before the dispute arises.
For mediation to be timely, mediation rules and clauses must be agreed by the parties and their management in advance.
It is necessary to participate in the mediation procedure by persons who are authorized to decide on the fate of the dispute and have information about the true causes of the conflict.
If the parties to a sea contract have a mutual interest in maintaining relations, they are adjacent in the same port, or are otherwise interconnected, then mediation can be a promising way for them to resolve the dispute.
Daria Zhdan-Pushkina
Member of Redstone Chambers
Member of the GMAA,
Supporting member of the LMAA,
Reporter of the Maritime Arbitration Commission at the Chamber of Commerce and Industry of the Russian Federation
This article was first published in the Maritime Law Journal 3/2021